July 17, 2015

The Law of Diminishing Marginal Utility: Why We Need Change?

Photo by foodiesfeed from plixs.com, Public Domain License CC0 1.0

It was a proven law in economics that the more you consume a single good (like burger) the less it become satisfying. For example, you eat a burger this morning, then you eat another burger this afternoon, then another one again in the evening. When you eat another burger the next day, you would probably feel less satisfaction compared the first time you eat a burger.

The Law of Diminishing Marginal Utility has a big implication on the innovation of products and services. This is the reason why change is inevitable in business. Businesses need to innovate because at some point, the satisfaction from consuming the same product will decline. This is a validation that humans have unlimited wants. One product can satisfy the need but wants has no satisfaction.

The said law also explains the psychology of mobility, why people love to move from one place to another. People are getting satisfaction from new things; from new places; from new tastes. Even in the music, the said law applies - repeat the music ten times and I would bet if you want to hear it the 11th time (but I should say that this is a case to case basis). The said law has many application, these are just to lay down some of the few. In passing, people have limited satisfaction – businesses can grow further by embarking on innovation or in simple word -- change.

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